Giving due recognition to ethical capital

An organisation that can claim ethical leadership and an ethical culture encompassing ethical conduct within the company and relative to its external stakeholder has clearly created something of great value. And that value warrants being accurately identified, not least because the benefits of clarification and focus support the pursuit of ethics. This value can best be described as ethical capital. Yet this is neither a widely adopted concept within organisations nor is it recognised in the six capitals model. Consider instead that ethical capital should be recognised as an asset that serves as a source of value for the organisation and its stakeholders.

In favour of ethical capital as a distinct capital

The six capitals model, comprising financial, manufactured, intellectual, human, social and relationship, and natural capital, is core to the International Integrated Reporting (<IR>) Framework (the Framework). There are three factors that support ethics being recognised as a distinct capital.

1.The capitals influence the organisation’s ability to add value over time

The six capitals model directly addresses the purpose of an integrated report which includes explaining to financial capital providers how an organisation creates value over time. The capitals are viewed as stocks of value on which the organisation depends for its success, and are intended as a guideline for ensuring that organisation considers all the forms of capital it uses or affects. The Integrated Reporting Committee of South Africa (IRC of SA) accordingly acknowledges relative to the capitals that “changes in their availability, quality and affordability can affect the organisation’s ability to create value over time”.

This clearly applies to ethics. The organisation definitely depends for its success on its ethical status, as is well illustrated by the negative consequences of ethical failures. The recent announcement that Bosasa (now known as Africa Global Operations) has gone into voluntary liquidation is exactly such a case in point. Conversely, a sound ethical culture and reputation can create value over time for the organisation and its stakeholders, including its financial capital providers.

2. Customising the capitals

The Framework and the IRC of SA explicitly state that organisations do not need to adopt the exact definitions of the capitals as set out in the Framework, and are free to use their own definitions: